Phasing out coal: KfW supports South Africa’s comprehensive energy sector reforms

• EUR 300 million for socially affordable and environmentally sustainable conversion of the energy sector
• Increase in the share of renewable energies to 38% by 2030 – reduction of CO2 emissions by up to an additional 32% by 2030
• Investments in the expansion of renewable energies and in social infrastructure

On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), KfW has signed a promotional loan with the South African Ministry of Finance in the amount of EUR 300 million for comprehensive reforms of the South African energy sector, which has been heavily dependent on coal to date. The funds are the first contribution to the Just Energy Transition Partnership (JET-P), which South Africa agreed with Germany, three other countries and the EU at the UN Climate Change Conference in Glasgow. As part of the JET-P, commitments of up to USD 8.5 billion were made to South Africa by the partner countries for the next three to five years in order to support South Africa’s phase-out of coal.

The energy transition in South Africa envisages significant investments in the expansion of renewable energies such as decentralised solar and wind power plants and associated grid infrastructure, which will result in a share of 38% of the South African energy mix. Urgently needed reforms are also being carried out at the state-owned, highly indebted energy company ESKOM in order to remedy the energy shortage in the country. In addition to the unbundling of the company, these reforms also include ending the company‘s monopoly on energy by allowing private commercial electricity producers. At the same time, the phase-out of coal must be socially affordable. This is why there are plans to invest in vocational training for young people, promote small and medium-sized enterprises and the associated jobs, and expand certain regions as innovation sites for the production of green hydrogen and electric vehicles.

“South Africa has a very high proportion of coal in the energy mix. Therefore, moving away from coal-fired power generation and supporting the country’s energy sector reform efforts is absolutely essential to achieving climate targets. At the same time, the aim is to re-establish the security of supply and make the process socially affordable. Creating jobs for the population is therefore necessary for social and economic stability as well as acceptance of the energy transition among the population,” said Christiane Laibach, Member of the Executive Board of KfW Group.

The various components of these reforms will play a significant role for achieving the Sustainable Development Goals outlined in the United Nations’ 2030 Agenda by 2030. In particular, the development cooperation support KfW is providing on behalf of the German Federal Government is targeted at delivering progress on South Africa’s ambitious climate targets (nationally determined contributions, NDCs), which envisage a high reduction in greenhouse gas emissions by 2030. Furthermore, the share of renewable energies in the South African energy mix is to be increased from 11% to 38% by 2030.

Information about KfW Development Bank is available at:
www.kfw-entwicklungsbank.de